Posted on: 04th Apr, 2004 10:55 pm
Rent Loss Insurance offers coverage for loss in rental income or rental value due to property damage by external hazard which therefore makes it unsuitable for habitation. The policy is often available as a part of hazard insurance on your investment/rental property.
Is rent loss insurance mandatory?
Most of the mortgage companies require you to purchase this policy when you buy your investment property. As per the lending guidelines put forward by the Investor Company Freddie Mac, it is not optional but mandatory for borrowers to purchase rent loss insurance policy. In case of more than one investment property, the company requires insurance policies for each rental units independent of the net rental income.
The insurance premium provides coverage for damages to the property as well as if you lose rent on account of the damage. Usually the policy covers minimum of 6 months of gross rental income when your rental unit is unsuitable for habitation due to hazards such as fire or other damages.
The insurance premium provides coverage for damages to the property as well as if you lose rent on account of the damage. Usually the policy covers minimum of 6 months of gross rental income when your rental unit is unsuitable for habitation due to hazards such as fire or other damages.
What are the factors affecting rent loss coverage?
The insurance premiums are calculated by sorting out the variables at the rental unit into various categories. The time frame for receiving the coverage and the coverage itself are limited. But when your property is damaged, you can receive rent loss payments till you reconstruct the damaged portion and find a better tenant for the rental unit.
The net operating loss or the amount of rent loss insurance depends on the gross monthly rental income after deducting the following items:
The net operating loss or the amount of rent loss insurance depends on the gross monthly rental income after deducting the following items:
- Taxes
- Mortgage payments
- Insurance premiums
- Maintenance costs
- Expenses on utilities
- Vacancy factor for rental units in your area.
Related Forum Discussion
Hi EmmyLou,
The damages that you've incurred in your property will be covered by the condo insurance. However, if you could not rent the property for 1-2 months due to serious water damage, then it may be covered under the rent loss insurance. I would suggest you to read through the fine print of your rent loss insurance policy and check out the type of coverage you would receive. Read through the clauses in your insurance policy and look for the exclusions as well.
Thanks,
Jerry
The damages that you've incurred in your property will be covered by the condo insurance. However, if you could not rent the property for 1-2 months due to serious water damage, then it may be covered under the rent loss insurance. I would suggest you to read through the fine print of your rent loss insurance policy and check out the type of coverage you would receive. Read through the clauses in your insurance policy and look for the exclusions as well.
Thanks,
Jerry
Thank you, Jerry. Our condo insurance covered the damage, but not the loss of rental income. If our owners rent short term (vacation rental), are there rent-loss policies out there that would cover that short amount of lost revenue? Or do they generally only cover long-term rental situations?
Thanks!
Thanks!
Hi EmmyLou!
Welcome to forums!
It's not easy to get insurance for such vacation rental purposes. Very few carriers are now offering such policies. Once you'd offer your home for short-term rent, it will prove that you're in business. You're actually offering your valuable asset to be used by your customers. Your rental income might just be a bit lower than you expected.
P&C insurance on the primary policy that you have is not aimed at covering your rentals and hence it may not be sufficient to cover your property. You must consult with a local agent and get things clarified before you sign-up. If you're not covered to face problems with your renters, then you may end up paying thousands out-of-pocket.
These days landlords would often opt for loss-of-rental-income insurance. If you want to rent it out for commercial purpose you may opt for commercial landlord insurance or commercial property insurance. Some of the big insurance carriers may offer such rent-loss coverage e.g. Metlife.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
It's not easy to get insurance for such vacation rental purposes. Very few carriers are now offering such policies. Once you'd offer your home for short-term rent, it will prove that you're in business. You're actually offering your valuable asset to be used by your customers. Your rental income might just be a bit lower than you expected.
P&C insurance on the primary policy that you have is not aimed at covering your rentals and hence it may not be sufficient to cover your property. You must consult with a local agent and get things clarified before you sign-up. If you're not covered to face problems with your renters, then you may end up paying thousands out-of-pocket.
These days landlords would often opt for loss-of-rental-income insurance. If you want to rent it out for commercial purpose you may opt for commercial landlord insurance or commercial property insurance. Some of the big insurance carriers may offer such rent-loss coverage e.g. Metlife.
Feel free to ask if you've further queries.
Sussane
I"VE BEEN LOOKING FOR A RENT LOSS INSURANCE, ANY COMPANY IN MIND THAT OFFERS THESE? (AND BOND INSURANCE IF POSSIBLE)
Hi Guest!
Welcome to forums!
You can contact the local insurance companies in order to find out if they offer rent loss and bond insurance. I'm sure you can get better help from them in this regard.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
You can contact the local insurance companies in order to find out if they offer rent loss and bond insurance. I'm sure you can get better help from them in this regard.
Feel free to ask if you've further queries.
Sussane
can a rent loss policy be purchases separately from the fire policy?
Under the coverage section of the homeowners insurance policy. Is Rent Loss Insurance the same as Loss of Use or are they two different coverages
Hi Shirley!
Welcome to forums!
By nature, the Rent loss insurance and the Loss of Use insurance is similar. However, the difference lies in the fact that rent loss insurance comes into play in case of a rental property whereas the loss of use insurance will be triggered in case of your own primary residence.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
By nature, the Rent loss insurance and the Loss of Use insurance is similar. However, the difference lies in the fact that rent loss insurance comes into play in case of a rental property whereas the loss of use insurance will be triggered in case of your own primary residence.
Feel free to ask if you've further queries.
Sussane
You say "net operating loss or the amount of rent loss insurance depends on the gross monthly rental income after deducting the following items: mortgage payments. . ."
Question: If you are relying on rents to pay the mortgage but have to deduct the mortgage payment from the calculation, how are you supposed to pay the mortgage while the property is being reconstructed?
Question: If you are relying on rents to pay the mortgage but have to deduct the mortgage payment from the calculation, how are you supposed to pay the mortgage while the property is being reconstructed?
You will have to make the payments for your construction loan though the home is being reconstructed. However, if you have a rent loss insurance, then it will help you in paying off the mortgage.
If you deduct the taxes, mortgage payments, ins. premiums, maintenance costs and utilities from the gross monthly rent, there could be zero or a negative figure. Does this mean you couldn't get rent loss insurance in that case? Won't it help cover the mortgage payments?
You should contact your insurance agent and he will be able to guide you in a better manner in this regard.
Our tenants had a fire in our rental house. All the damages took almost 19 months to correct and make the house liveable. The insurance company only paid for 6 months loss of rents. Yet, their approved contractor didn't even start dry wall at that time. Is this something we should dispute?
You should contact an insurance attorney who will help you in dealing with this matter. He will let you know whether or not you will be able to dispute the whole matter.
This is a great article. Very informative and helpful especially for those people who are stressed out of so many insurances to pay.
